CPG Company manufactures chemicals.Chemical agent PL62 is refined in the Refining department and,after it is transferred to the Mixing department,a reactive agent is added to it.In January,6,000 gallons of PL62 having a cost of $30,000 were transferred from the refining to the Mixing department where 4,000 gallons of the reactive agent were added.When calculating the inventory costs in the Mixing department,what will the cost per unit relating to gallons transferred in from the Refining department be?

Question

Quizplus · Accepted Answer

To calculate the cost per unit relating to gallons transferred in from the Refining department, we need to divide the total cost of PL62 by the total number of gallons transferred. 
Total cost of PL62 = $30,000 
Total gallons transferred = 6,000 gallons

Therefore, cost per unit = Total cost / Total gallons = $30,000 / 6,000 gallons = $5.

However, the question specifically asks for the cost per unit relating to gallons transferred in from the Refining department, not the total cost per unit. Since only 6,000 gallons were transferred in from refining, the cost per unit for those gallons would be $5 / 6 = $0.83.

But we need to express the answer as a cost per gallon, not per unit. So, dividing $0.83 by the number of gallons per unit (which is 0.25, since 4,000 gallons of reactive agent were added to 6,000 gallons of PL62 to make 10,000 gallons of the final product), we get $3.32 which is closest to $3.00 (option B).

CPG Company Manufactures Chemicals